When selling a property, recent changes in the law have introduced new obligations. As a part of the conveyancing process, you must provide a capital gains withholding Clearance Certificate to declare your status as an Australian tax resident. This is where a tax advisor can be helpful.
The Clearance Certificate informs potential buyers that they are not required to withhold up to 12.50% of the agreed-upon price (a value determined by the ATO by law) from the sale proceeds and remit to the tax office.
The new measures were brought in to ensure that tax is collected at source on property sales from non-residents, rather than chasing the total tax on lodgement of the non-resident’s tax returns (which sometimes doesn’t happen). If you are an Australian tax resident, you are relieved from this responsibility, and you can pay any tax owing when the tax return is lodged.
The tax deducted at source from a non-resident sale of the property is allowed as a credit against the final tax liability calculated when the actual tax return for the year is prepared and lodged. There can either be more tax to pay or a refund when the actual tax amount is calculated.
What if you are a non-resident when the contract for sale is signed?
Then you cannot provide the Clearance Certificate, and a base rate of 12.5% of the agreed price will be withheld and paid to the ATO upon settlement. This rate can be varied for a few reasons with an application to the ATO.
The reasons for variation could include
- that the actual capital gains tax liability works out to be less than 12.5% of the sale price,
- the gain will be exempt,
- are you applying for a rollover, or
- the mortgage on the property will not be fully discharged should the 12.5% withholding be applied.
If you think you have reason to vary the rate of withholding, nothing can be done after the property has settled, so it is imperative you get in touch with your Client Manager shortly after the sale contract has been signed to see if you are entitled to apply for a variation. Variation applications can take up to 28 days to be processed, and if you are successful, the Variation Certificate will need to be given to your conveyancer before settlement.
On a similar basis, the Clearance Certificate should be applied for early so they are available well before the settlement.
Each vendor requires their own Clearance Certificate or, if applicable, a Variation Certificate. Both applications can be made via the ATO website using their online forms.
If you have any queries, please contact us to discuss.
Kreston Stanley Williamson Team
*Correct as of January 2019
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.